Government in consultation
with RBI and SEBI has been making concerted efforts to strengthen India’s capital
market and open-up the economy in a calibrated and careful manner to attract greater
foreign capital flows and investment keeping in view the evolving macroeconomic
scenario and financing needs of the economy.
Recently International Finance
Corporation (IFC) launched a $1
billion offshore bond program—the largest of its kind in the offshore rupee
market—to strengthen India’s capital markets. Under the program, IFC will issue
rupee-linked bonds and use the proceeds to finance private sector investment in
the country. It may be noted that the exchange rate risk on the bond is borne
by the investor.
On
November 19, 2013 IFC issued the first tranche of US $ 161 million under its
USD 1 billion Global Rupee Bond Program. In the context of the renewed
volatility of the Indian Rupee in recent weeks, this is a very good outcome and
sends a positive medium to long term message on the currency and the economy.
Salient
features of the IFC inaugural tranche are as under:
|
Features
|
Details
|
|
Size
|
INR
10 Billion ($161 million)
|
|
Tenor
|
3
years
|
|
Coupon
|
7.75%
(70 bps below prevailing 3-year Indian government bond yield)
|
|
Order
book
|
INR
20.6Bn (approx. 2 times oversubscription).
|
|
Investor
Profile
|
27 investors across the globe (from the US,
Asia and Europe) participated in the transaction. Investors include asset
managers, insurance companies, central and private banks, corporates,
pension funds and real money investors.
|
This
pioneering bond issue has met with a tremendous response and the fact that it
has been oversubscribed by two times compared to the targeted amount of $161
million, shows the attractiveness of quality Indian Rupee paper for global
investors. In order to meet the huge need for infrastructure funding, it is
crucial for India to develop the off-shore Rupee market as an alternative
source of dollar funding. This capital raising opens up a new conduit for
mobilizing funds for our various development needs, including for
infrastructure. The success of this novel issue prepares the ground work for
future issuances and is an important milestone for developing both our offshore
as well as onshore debt capital markets.
The IFC global Rupee bond program
would lead to inter-mediation of international savings for development and help
in the further development of capital markets in India. It will broaden the
international investor base for India by attracting foreign investors who can
invest only in very highly rated paper and/or smaller investors who want to
take Rupee exposure but are not set up to make investments on-shore. An
important objective is not only to bring in dollar inflows but to send a signal
to the international markets about India’s economic strengths. IFC’s offshore bond program will help bring
depth and diversity to the offshore rupee market, help strengthening/
stabilizing external value of rupee and pave the way for an additional source
of funding for Indian companies.
*****
DSM/ka